Tuesday, 2 August 2016

Eurozone Producer Prices Rise at Fastest Pace in Almost Four Years

In World Economy News 02/08/2016

The prices of goods leaving the eurozone’s factory gates rose at their fastest pace in almost four years during June, a sign that higher energy prices are set to lift inflation from recent lows.
However, there are few signs that inflationary pressures are building outside of the energy sector, which may mean that any energy-driven boost to inflation will prove short-lived.
The European Union’s statistics agency said Tuesday that producer prices rose 0.7% from May, and were down 3.1% from June 2015. That was the second straight monthly rise in prices, and the largest since August 2012. Economists surveyed by The Wall Street Journal last week had estimated that prices rose by 0.5%.
The increase in producer prices suggests that the eurozone is poised for a sustained move out of deflation. Figures released Friday showed consumer prices rose 0.2% year-over-year in July, having been below their year-earlier levels as recently as May.
The pickup in producer prices will be welcome news for policy makers at the ECB, who are no closer to meeting their inflation target of just under 2% than they were when launching the first of a series of stimulus packages in June 2014.
Policy makers expect consumer-price inflation to pick up toward the end of the year as energy prices steady, and to rise further in 2017 and 2018.
However, in a news conference last month, ECB President Mario Draghi said those forecasts were subject to “downside” risks, and in particular the threat that the U.K.’s decision to leave the European Union could weaken growth and inflation.
Mr. Draghi also said policy makers are open to providing additional stimulus should the U.K. vote appear likely to throw its efforts to boost inflation off course, but said it was too early to judge whether that would be the case.
Outside the energy sector, inflationary pressures remain weak, a reflection of the sluggish pace of the eurozone’s economic recovery and still-high rates of unemployment. Figures also released Friday showed the eurozone economy slowed in the three months to June, while the jobless rate remained at 10.1% in June.
Excluding a 2.4% increase in energy charges, producer prices rose by just 0.2% on the month, the same rate as recorded in May.
The eurozone isn’t alone in experiencing a long period of very low inflation. But there are some signs that inflation rates may be picking up as energy prices stop falling.
The Organization for Economic Cooperation and Development Tuesday said the annual rate of inflation across its 34 members picked up in June for the first time since January, rising to 0.9% from 0.8% in July. Among members of the Group of 20 largest economies, the annual rate of inflation was unchanged at 2.3% for the fourth straight month.

Source: Dow Jones